How foreclosure delays impact mortgage defaults and mortgage modifications

Research output: Contribution to journalArticlepeer-review


The mortgage foreclosure process was prolonged after the financial crisis. I analyze its impact on mortgage defaults and post-foreclosure modifications. When a household fails to repay a mortgage, the delinquent household can stay in its home without paying rent or making a mortgage payment until the foreclosure process terminates, leading to an increase in defaults. My quantitative exercise shows that unexpected declines in house prices with foreclosure delays that mirror the financial crisis triple the mortgage delinquency rate, while it temporarily reducing the foreclosure rate by half. An increase in mortgage defaults motivates financial intermediaries to voluntarily modify loan terms after initiating the foreclosure process to mitigate their losses.

Original languageEnglish
Pages (from-to)18-37
Number of pages20
JournalJournal of Macroeconomics
Publication statusPublished - 2019 Mar

Bibliographical note

Funding Information:
I thank the editor William Lastrapes, an anonymous referee, and seminar participants at Inha University, Yonsei University, Korea University, the 2016 Korea International Economic Association Annual Meeting, the 2017 Society for Economic Measurement, and the 2017 Korean Econometric Society Summer Meeting. This research was supported by the Yonsei University Research Fund of 2018-22-0015 .

Publisher Copyright:
© 2018 Elsevier Inc.

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics


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